# EUR-Lex - 52013DC0690 - EN

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# 52013DC0690

**COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL STRENGTHENING THE SOCIAL DIMENSION OF THE ECONOMIC AND MONETARY UNION /* COM/2013/0690 final */**

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Communication from the Commission 
to the European Parliament and the Council

Strengthening the social dimension of the economic and monetary
union

1. INTRODUCTION

On 28
November 2012, the European Commission adopted a blueprint[1]
for a deep and genuine economic and monetary union (EMU), setting out a vision
for a strong and stable architecture for the political, fiscal and economic
components of EMU. The December 2012 European Council supported the development
of the social dimension of the EMU, including social dialogue.

To
this end, the June 2013 European Council recalled that the social dimension
should be strengthened and emphasised the importance of better monitoring and
of taking account of the social and labour market situation in the EMU, notably
by using appropriate employment and social indicators as part of the ‘European
Semester’ process for economic policy coordination. It also pointed to the need
to improve coordination of employment and social policies, while fully
respecting national competences, and to the role of the social partners and
social dialogue, at both EU and national levels. The European Parliament also
expressed its views on priorities for achieving a genuine EMU, in particular
recommending a social pact for Europe.[2]

This Communication
on strengthening the social dimension is a further contribution from the
Commission to the debate on deepening EMU, bearing in mind that the general
social agenda is a matter for the 28 Member States.
It should also be noted that employment and social policies fall very largely under
the national competence of the Member States. What the Commission proposes
is a number of initiatives to strengthen the social dimension of EMU with a
particular focus on three points:

i. Reinforced surveillance
of employment and social challenges and policy coordination;

ii. Enhanced solidarity
and action on employment and labour mobility;

iii. Strengthened
social dialogue.

2. 
STRENGTHENING THE SOCIAL DIMENSION OF THE EMU

2.1       The overall social dimension of the
Europe 2020 strategy

In defining
and implementing its policies and activities, the EU is obliged, under the
Treaties, to take into account requirements linked to the promotion of a high
level of employment, the guarantee of adequate social protection, the fight
against social exclusion and a high level of education, training and protection
of human health (Article 9 TFEU).

The adoption
of the Europe 2020 strategy put social policy at the core of EU economic
strategy for the first time. With Europe 2020, the EU set headline targets for
raising the employment rate, reducing early school leaving, increasing the
proportion of completing tertiary education or equivalent and lifting at least
20 million people out of poverty. These are the heart of its strategy for
smart, sustainable and inclusive growth. The targets are already shaping social
policies in the EU. Key policies adopted and measures taken at EU level are
being implemented, for example the Employment Package presented in April 2012,
the December 2012 Youth Employment Package, and the February 2013 Social
Investment Package.

When setting
priorities for action at national and EU levels in its Annual Growth Survey
(AGS), the Commission wants to ensure that Member States align their budgets
and policies to ensure, in particular, high levels of employment and social
cohesion. Once a year when reviewing the economic and social progress of each
of the EU Member States in the European Semester process and making
country-specific recommendations to guide national policies, the Commission
pinpoints major economic and social challenges for the EU and for the euro
area. The European Semester therefore provides the proper framework for
steering and monitoring Member States’ economic and social reforms. In
addition, the Open Method of Coordination on social protection and social
inclusion has contributed to steering structural reforms in social policy
areas.

The crisis revealed the
untenable path of economic policies in certain Member States, and also exposed
structural weaknesses in Europe’s economy and in EU-level governance. The response to the crisis focused strongly on necessary
structural reforms, specifically for Member States receiving financial
assistance (the ‘programme countries’), and more widely through
country-specific recommendations for others.

The economic crisis has
made it harder to meet the Europe 2020 targets: employment has suffered in most
Member States and disparities in the employment and social situations of Member
States have been growing. Some 26.6 million people
were unemployed in the EU-28 in July 2013, including over 19.2 million in the
euro area. Nearly a quarter of economically active young people in Europe are
unemployed: 23.4 % (5.6 million) in the EU-28 in July 2013 and 24 %
(3.5 million) in the euro area. Poverty and social exclusion have been on the
rise since 2009, especially in Member States in southern and eastern Europe. In
some countries, the correction of imbalances has been accompanied by falling
output, rising unemployment and a fall in disposable incomes, while others have
so far shown at least some resilience. The latter tend to have
better-functioning labour markets and more robust welfare systems, and to have
benefited from structural reform undertaken well before the crisis.[3]

Nonetheless, progress
has been made under very challenging conditions. The reinforcement of the EU’s
economic governance and measures taken to facilitate country-level adjustment
are proving to be effective, and are laying the foundations for catalysing and
supporting economy recovery and job creation. To tackle the challenges that
still lie ahead, it is important to strengthen the social dimension of EMU to
get a better insight into social policies and developments.

2.2       The social dimension of EMU

For EMU to work properly,
its governance structures need to be completed to be able to prevent and
correct lasting disparities that might threaten the financial and economic
stability of the monetary union as a whole, our prosperity, and ultimately our
social market economy. The ability to make real
economic adjustments is crucial in a monetary union. The crisis revealed gaps
in the functioning of the monetary union, although major steps have been taken
to reinforce the EU’s economic governance. A very high economic and social price
has been paid, since too often the necessary reforms have been delayed because
of political circumstances. Structural reforms supporting employment,
competitiveness and greater socio-economic opportunities may take effect with
considerable time lags and often seem difficult to undertake in an economic
downturn, while in an upturn there may be no sense of urgency. Yet failure to
undertake the required measures may result in negative spillover effects and
deterioration in the economic fundamentals of the monetary union as a whole. It
is in the collective interest of the monetary union to ensure that structural
reforms addressing employment and social challenges are properly implemented,
and Member States need to support each other to that end.

Unemployment and social
problems mean a loss of income for significant parts of the population or for
society as a whole. They also hold back competitiveness and the growth
potential of the economies concerned, because present and future human capital
is underutilised or lacks investment. Persistent unemployment and social
inequalities can also weaken political and public support and can affect the
stability of governments and their capacity to make sound policies. Without
collective action to ensure that employment and social challenges are tackled
in a timely and effective manner, long-lasting disparities may develop.

The ‘social
dimension of EMU’ relates to the ability of economic governance mechanisms and
policy instruments to identify, take into account and address problematic
developments and challenges related to employment and social policies in the
EMU. Strengthening the social dimension should help all Member States achieve
their growth and employment potential, improve social cohesion and prevent
increasing disparities, in line with the Treaties and the Europe 2020
strategy.

Progress is needed along
the following fronts:

· 
enhancing
capacity to monitor employment and social developments in EMU to better
coordinate a timely and adequate policy response;

· 
mobilising
EU action and funding to tackle unemployment (including youth unemployment) and
social distress in an effective and sustainable way;

· 
combining
the steps taken on responsibility and economic discipline with more solidarity
and financial support;

· 
reducing
existing barriers to cross-border labour mobility in the EU;

· 
strengthening
the role of social dialogue in developing euro-area-wide and national
strategies, through appropriate involvement of the social partners.

3. 
REINFORCING
SURVEILLANCE OF EMPLOYMENT AND SOCIAL CHALLENGES AND STRENGTHENING POLICY
COORDINATION

The EU policy
response to the crisis involved strengthening the EMU’s economic governance and
multilateral surveillance, notably in the euro area. This was done within the
framework of the European Semester process of economic policy coordination. A
new surveillance mechanism designed to prevent macroeconomic imbalances, with
provision for enforcement, was introduced with the adoption of Regulation No
1176/2011.

As the
Commission Blueprint points out, the EMU has been overhauled, but the work is
not yet complete. Although employment and welfare systems are primarily the
responsibility of Member States, building a genuine EMU with a social dimension
means developing or strengthening employment and social policy instruments and
mechanisms within the existing governance framework.

Progress is
needed on incorporating the social dimension in surveillance of the
macroeconomic imbalances. It is also needed more generally in the European
Semester of economic policy coordination, and can be done by strengthening the
existing framework for coordination of employment and social policies. Better
catering for the social dimension in surveillance of macroeconomic imbalances
would help to improve the design of the policies recommended to countries
undergoing macroeconomic adjustment.

Moreover, it
is important to detect major adverse employment and social developments at an
early stage, and to enhance coordination and monitoring of employment and
social policies.   This would ensure effective policy responses and foster
convergence in these fields. Mutual learning, exchange of best practice and
benchmarking based on stronger surveillance would help to promote convergence.

3.1       Reinforcing the monitoring of
employment and social developments as part of macroeconomic surveillance

The macroeconomic
imbalances procedure (MIP) was introduced in 2011 to give EMU a surveillance
mechanism for preventing and correcting serious imbalances, together with means
of enforcing it. The MIP covers a wide range of issues, ranging from external
sustainability, through competitiveness, credit and indebtedness, to asset
prices and financial stability. Attention to each of these issues is
instrumental to the overarching objective of ensuring macroeconomic stability.
In particular, it can help prevent ‘boom and bust’ cycles while managing ‘bust’
phases in which loss of confidence in financial markets, capital flight, and
widespread deleveraging are coupled with depressed economic activity and social
distress.

As shown by the recent
experience of a number of euro area countries, harmful macroeconomic imbalances
related partly to the build-up of private and public indebtedness and sustained
competitiveness losses pose severe risks to a country’s growth and employment
prospects and welfare. Therefore, it is crucial to spot potential risks early
on and prevent the emergence of harmful macroeconomic imbalances.

Social issues have so
far not appeared explicitly in the implementation of the MIP. Making such a
link more explicit would be advantageous in several respects. It would allow
better understanding of the risks of such imbalances in terms of unemployment,
poverty and wider social consequences. It would also contribute to better
understanding of social developments during adjustment processes. Such improved
knowledge would ultimately help to identify policy measures to correct
imbalances while minimising their social consequences.

The MIP consists of a
series of steps. It starts with the annual Alert Mechanism Report (AMR) and a
scoreboard of indicators. This is followed by specific in-depth reviews on
countries identified as potentially at risk of imbalances at the AMR stage, and
leads to country-specific recommendations and, possibly, to corrective action
plans for countries with excessive imbalances. The social implications of
imbalances should be better integrated in the current framework for
surveillance of macroeconomic imbalances by reinforcing the overall MIP
analysis with indicators on employment and social issues.

In the Alert Mechanism
Report, unemployment
already appears among the headline indicators. To better reflect the social
implications of macroeconomic imbalances, a limited number of auxiliary employment
and social indicators could be added. For the 2014 European Semester the
following additional auxiliary indicators could be introduced (see the
indicative table in the annex):

i. participation
rate:

ii. the long-term
unemployment ratio;

iii. the youth
unemployment rate (complemented by the proportion of young people who are not
in employment, education or training (NEET));

iv. the ‘at risk
of poverty and social exclusion’ rate (complemented by the three
sub-indicators: the at-risk-of-poverty rate, the severe material deprivation
rate, the proportion of persons living in households with low work intensity).

The Commission, the European Parliament and the
Council will cooperate on selecting these indicators.

The In-Depth Reviews and
other relevant policy documents should regularly contain a section discussing
employment and social developments in the country under analysis, making use of
a wider range of social indicators and analytical tools than those contained in
the scoreboard of the AMR. This would help to clarify the inter-linkages
between mounting imbalances and social developments and would thus help with
the formulation of policy approaches.

3.2       Developing
a key employment and social indicators scoreboard and strengthening
coordination of employment and social policies

As set out
in the Commission’s Blueprint, coordination and surveillance of employment and
social policies should be reinforced within EMU governance, and convergence in
these areas should be promoted.

Since its adoption 15
years ago, the European Employment Strategy has provided a framework for
coordinating job creation policies, similar to the framework for economic
policy, and with the same aim of converging towards jointly set, verifiable,
regularly updated targets.[4] The Europe 2020 strategy has a strong emphasis on
employment and social dimensions and contains specific goals for employment and
poverty reduction. The draft Joint Employment Report, published as part
of the Commission’s Annual Growth Survey analyses
employment and social challenges as well as the Member States’ policy
responses, and it serves as a basis for further analysis, surveillance and
coordination throughout the European Semester.[5] Overall, the
Europe 2020 strategy delivers an effective system of economic governance which has been set up to coordinate policy actions between
the EU and national levels.

At the EPSCO Council,
ministers have already expressed their willingness[6] to further
develop the current monitoring tools[7] and reinforce
multilateral surveillance and policy coordination with a scoreboard of employment
and social indicators.

The Commission proposes
to create a scoreboard of key indicators to be used in its draft Joint
Employment Report to follow employment and social developments. It
should serve as an analytical tool allowing better and earlier identification
of major employment and social problems, especially any that risk generating
effects beyond national borders.[8] This
scoreboard would consist of a limited number of key indicators focusing on
employment and social trends that can severely undermine employment, social
cohesion and human capital, and have negative effects on the growth and
competitiveness of a Member State. It would be incorporated into the draft
Joint Employment Report in order to provide a more focused basis for reinforced
multilateral surveillance of employment and social policies, helping to
identify developments that warrant stronger employment and social policy
responses.[9] The
following headline indicators (see the indicative table in the annex) could help
detect negative trends at a reasonably early stage and help anticipate further
deterioration:

i. unemployment
level and changes;

ii. NEET rate
(young people not in education, employment or training) and youth unemployment
rate;

iii. real gross
disposable income of households;

iv. at-risk-of-poverty
rate of working age population;

v. inequalities
(S80/S20 ratio).

The reading of the
scoreboard should not be mechanical and a more detailed interpretation of it
should build on existing tools (the Employment Performance Monitor (EPM),[10] the Social
Protection Performance Monitor (SPPM),[11] the Joint Assessment
Framework (JAF)[12] and agreed
datasets like the European Labour Force Survey and EU Statistics on Income and
Living Conditions.

The employment and
social indicators for the scoreboard should capture the key phenomena for each
country and identify the most serious problems and developments at an early
stage and before the country diverges too strongly from its past performance or
from the rest of the EU. By helping to detect key employment and social challenges
in the EU and to ensure a timely policy response, the scoreboard would also
help with meeting the Europe 2020 targets.

With a view to better
monitoring and taking account of the labour market and social situation, the
specific scoreboard of employment and social indicators should be agreed in
discussions between the Commission and the Council, and be ready in time for
the 2014 European Semester. Once the Council has adopted it, the
draft Joint Employment Report containing the proposed scoreboard will be
addressed to the European Council as part of the AGS. The scoreboard would be
discussed with the European Parliament and also with social partners.

Together with
reinforcement of the monitoring of employment and social developments in the
context of the Macroeconomic Imbalances Procedure, as described in section 3.1,
the scoreboard of key employment and social indicators will help better
integrate employment and social concerns in the overall policy landscape. It would feed
into the Council’s and Committees’ work ahead of the spring European Council.

3.3       Stronger coordination of employment and social policies
within the European Semester

It is important to
ensure stronger coordination of employment and social policies within the
European Semester. This requires a clear, common analysis of key factors,
highlighting the most pressing measures and reforms to be adopted.

The Joint Assessment
Framework, the Employment Performance Monitor and the Social Protection
Performance Monitor are the three tools currently used to identify
country-specific challenges and to compare and rank performance among Member
States. The ultimate aim of these comprehensive tools is to identify and
commonly agree on a set of key labour market and social challenges that Member
States face on their progress towards the Europe 2020 objectives. The
scoreboard would not represent a re-statement of the Europe 2020 policy
ambition, but would rather aim to detect developments in the socioeconomic
situation across the EU that require closer monitoring. Its purpose and
character would be complementary to those of these monitoring tools.

Benchmarking and
performance assessment are already provided through the existing tools and
should be supported and further built upon, also within the work of the
Employment and Social Protection Committees. The Employment Performance Monitor
shows benchmarking of Member States’ performance giving a visual representation
against statistically identified best performers, while the Social Protection
Performance Monitor contains a dashboard of 20 key social indicators aiming to
give a well-rounded picture of the main changes in the social situation in
Europe and lead to identifying ‘key social trends to watch’.

Policy guidance
developed on the basis of best performance and taking the form of detailed
guidelines or Council recommendations — as in the case of the Youth Guarantee —
can help to spread best practice and to focus the efforts of governments and
stakeholders on tackling challenges relevant for the EU as a whole. Moving
towards best practice and benchmarks can support the creation of more dynamic
labour markets, and facilitate job-rich growth.

The scope of best
practice promotion through stronger policy coordination could include such
areas as the quality of active labour market policies, reforms tackling labour
market segmentation, and the development of human capital. In the area of
public employment services, the replication of good practice will be promoted
through a Public Employment Services (PES) Network. With its recent proposal on
enhanced cooperation between PESs,[13] the Commission proposed
a general framework for benchmarking and mutual learning that would allow
meaningful comparison of PES’ performance.

Good performance from
welfare services, enabling and empowering people to participate in the economy
and access social services, is also important to maintain healthy economic
fundamentals throughout the EU. In this regard, there is still scope for
reinforcing the exchange of best practice in social policies through the open
method of coordination.

It is important that
these tools complement the new scoreboard for employment and social policies.
Therefore the Commission will discuss, with the European Parliament and the
Council, ways of further strengthening coordination of policies in the
employment and social areas by using these tools on a complementary basis as
part of the European Semester.

4.   RESPONSIBILITY, SOLIDARITY AND ENHANCED ACTION ON EMPLOYMENT
AND LABOUR MOBILITY

4.1       Greater
solidarity with reinforced financial instruments

The economic crisis has
increased inequalities and the risk of long-term exclusion while placing severe
constraints on public spending. As a result, the Member States face the
challenge of setting priorities for social investment and modernising welfare
services. This means improving their active inclusion strategies and making
more efficient and more effective use of social budgets. On 20 February 2013,
the Commission put forward a Social Investment Package aimed at providing guidance to Member States on increasing the
efficiency, effectiveness and adequacy of their social protection systems, with
a focus on social investment.

In developing a truly
social dimension, the scope of the EU budget must be fully exploited to develop
the social dimension of EMU. For the period 2014-20, resources and programmes
have been boosted. The European Structural and Investment Funds will continue
to drive Member States’ implementation of necessary reforms and modernisation
of social policies. The European Social Fund (ESF) will continue to play a
major role, and greater targeting of EU funds to sound employment and social
policies, when preparing 2014-20 partnership agreements and operational
programmes, can be a powerful growth stimulus in several Member States.

The new Programme for
Employment and Social Innovation can help spread innovative and cost-efficient
employment and social policy measures across Member States, and the Fund for
European Aid to the Most Deprived will provide material assistance to people in
greatest need. The European Globalisation Adjustment Fund will continue to be
an instrument of European solidarity with workers suffering from large-scale
layoffs resulting from changes in global and regional trade patterns.

The Youth
Employment Initiative (YEI) was designed to help Member States implement the
Youth Guarantee in regions with youth unemployment rates over 25 %. The
June European Council decided that the € 3 billion budget line dedicated
to the YEI should be frontloaded in 2014-15, supported by matching
contributions from ESF programmes of at least € 3 billion. The YEI is
evidence of the high political commitment to collectively tackle a key
employment and social challenge that disproportionately affects certain
countries and regions but has a negative impact on the EU as a whole. As a
matter of urgency, the Commission is currently supporting Member States in drawing
up their Youth Guarantee Implementation Plans, and expects to receive their
complete versions and financial programming proposals by the end of 2013.

4.2       Stepping up action on employment and
labour mobility

A crucial aspect of the
social dimension of EMU is to put in place employment policies that improve the
resilience of the labour market, preserve employment and competitiveness and
support the creation of new jobs to replace those lost through economic
restructuring. As emphasised in the 2012 Employment Package,[14] this
requires support measures on both the supply and demand sides of the labour
market. Member States should swiftly implement their National Job Plans, taking
into account the relevant country-specific recommendations.

One of the most urgent
employment challenges is to help young people join the labour market and
maintain their potential despite the adverse economic context. Europe has taken
action on this by agreeing that every Member State should put in place a Youth
Guarantee scheme and by setting aside resources to help implement this key
structural reform, via the Youth Employment Initiative. Rapid progress in this
area is crucial for maintaining a healthy growth potential in all countries and
for restoring socio-economic convergence in the EU.

Furthermore, it is well
established that the flexibility of factor markets is vital for a
well-functioning monetary union. Although capital has been highly mobile,
labour markets have often remained highly segmented. To ensure a fast match
between labour demand and supply across Europe and to maximise employment
potential, it is particularly important to improve people’s ability to move for
work within and beyond their national borders. The free movement of workers is
one of the cornerstones of the EU and its Single Market. In EMU, labour
mobility can to some extent also act as an adjustment mechanism in times of
asymmetric changes.

However, cross-border
mobility within the European Union is still low. Only 2.6 % of the EU
population has moved to live in a different Member State. In the euro area,
less than 4 % of the working age population are nationals of a different
Member State. However, 10 % of EU citizens have already worked in another
Member State and 17 % envisage working or living in another Member State
in the future. The current low level of labour mobility can be explained
by a number of factors, some of which are cultural and social (linguistic and
cultural barriers, housing markets, family ties). Others are related to the
exercise of rights conferred by EU law and the inadequacy of support for
intra-EU mobility (different social security and taxation systems, different
professional qualifications, and legal or administrative barriers).

The EU has already
addressed some of these persistent barriers. It has established an EU system to
recognise professional qualifications and an EU system to coordinate social
security benefits, ensuring that mobile workers do not lose their acquired
rights when they make a decision to cross borders. The Commission is pursuing
its work in relation to the activities of regulated professions, with a view to
enhancing the freedom of establishment in the services sector[15].

The recent Commission
proposal for a Directive on measures facilitating the exercise of rights in the
context of freedom of movement for workers[16] aims to
empower mobile workers by ensuring that they can receive advice, information
and support in the host country and by giving them a genuine means of redress
in the event of discrimination.

However, looking for a
job in another EU Member State is still complicated and administratively
burdensome and it can also have a negative impact on a person’s social security
rights. In its EU Citizenship Report, the Commission urged Member States to
make full use of the current rules in allowing jobseekers to receive their
unemployment benefits for up to six months while looking for a job in another
Member State.[17] The
Commission plans to present proposals in 2014 to review the unemployment
chapter of Regulations (EC) No 883/2004 and No 987/2009 with a view to
simplifying procedures for granting unemployment benefits in cross-border
situations and making the provisions more efficient.

At the same time, the
Commission and the Member States need to do more to ensure transnational
matching between labour supply and demand, in particular by upgrading the EURES
network into a pan-European recruitment, matching and placement service. In
2013, the Commission will table a proposal aiming to improve the processing of
vacancies and applications for employment, mobility support services for job
seekers and employers and to improve the overall coordination and governance of
mobility strategies between Member States. Moreover, it is crucial to tackle
skills mismatches to better anticipate the skills needed in the labour market.
This is the purpose of the recently launched EU Skills Panorama.

4.3       Deepening the EMU:
combining substantial ambition with appropriate sequencing

The current EMU
architecture is based on decentralised national fiscal policies under a
rules-based framework. The stabilisation function of fiscal policy is carried
out at national level, within the limits of the rules of the Treaties and the
Stability and Growth Pact. National automatic stabilisers (lower tax revenues
and higher social expenditure during downturns) have been allowed, under
certain conditions, to play an important shock-absorption role, given the
relatively large size of welfare services. But welfare policies (in particular
benefit systems) are by and large national responsibility under the Treaty,
which implies that the design, efficiency and functioning of automatic
stabilisers is a national responsibility and varies across Member States.

The Commission’s
Blueprint for a Deep and Genuine EMU provides a comprehensive vision conducive
to a strong and stable architecture in the financial, fiscal, economic and
political domains. It is also relevant for the development of the social
dimension of the EMU. The blueprint sets out the actions the Commission
believes must be taken in the short, medium and long term. On this path, steps
towards more responsibility and economic discipline should be taken in parallel
with more solidarity and financial support. Some of the required steps can be
adopted within the limits of the current Treaties. Others will require
modifying the current Treaties and giving new competences to the EU.

To develop the social
dimension of the EMU, the following aspects set out in the blueprint are
particularly important.

In the short term, the
Commission has proposed creating an instrument within the EU economic
governance framework and the EU budget, separate from the Multiannual Financial
Framework, to support rebalancing, adjustment and thereby growth. This is the
initial step towards establishing a stronger fiscal capacity alongside more
deeply integrated policy coordination mechanisms. The existing framework should
be strengthened by improving ex ante coordination of major reform projects
and by creating a ‘Convergence and Competitiveness Instrument’ (CCI) to provide
a framework for commitments to and support for the timely implementation of
structural reforms.

Financial support would
be granted for reform packages that are agreed and important both for the
Member State in question and for the good functioning of EMU. The use of
financial support would be defined as part of the contractual arrangement
concluded between the Member States concerned and the Commission. The
‘Convergence and Competitiveness Instrument (CCI)’ would combine deepening
integration of economic policy with financial support, mirroring the principle
of combining more responsibility with more solidarity.

This instrument could be
established under secondary law.

Building on the CCI, the
fiscal capacity could be progressively boosted to provide sufficient resources
to support major structural reforms, even for a large economy under distress.

Finally, in the long
term, based on progressive pooling of sovereignty and thus responsibility and
solidarity competencies at European level, it should become possible to
establish an autonomous euro area budget providing the euro area with a fiscal
capacity to support Member States absorb shocks. The central budget would
provide for an EMU-level stabilisation tool to support adjustment to asymmetric
shocks, increase economic integration and convergence and avoid setting-up
long-term transfer flows. Overall, a shared instrument could deliver net gains
in stabilising power, compared with current arrangements. The size of this fiscal
capacity would ultimately depend on the depth of integration desired and on the
willingness to enact accompanying political changes.

A common instrument for
macroeconomic stabilisation could provide an insurance system to pool the risks
of economic shocks across Member States, thereby reducing the fluctuations in
national incomes.

In its simplest
formulation, a stabilisation scheme to absorb asymmetric shocks could require
monetary net payments that are negative in good times and positive in bad
times. For example, a simple scheme could determine net contributions/payments
by countries as a function of their output gap (relative to the average). Such
a system would need to be financially neutral in the medium term for each
country, and it would also depend on country size.

Alternatively, the
scheme could be based on earmarking payments from the fund for a defined
purpose, with counter-cyclical effects (similar to the US unemployment benefit
system, where a federal fund reimburses 50 % of unemployment benefits
exceeding a standard duration, up to a given maximum, conditional on
unemployment being at a certain level and rising). The scheme could operate in
such a way to avoid ‘permanent transfers’ across countries. In other words,
they should be designed to avoid that, over a long period of time, any country
is a net loser or gainer from the scheme.

Such measures would
require a substantial Treaty change, since, at present, the EU does not have
the competence to adopt them, either for the euro area or for the EU as a
whole. The EU cannot engage the budgetary responsibilities of its Member
States. The EU’s current competences are limited, as regards employment, to
incentive measures designed to encourage cooperation between Member States and
to support their action, excluding any harmonisation (see Article 149 TFEU). As
regards social security and social protection, its competence is limited to
adopting directives setting minimum requirements for Member States’ systems
whose fundamental principles and financial equilibrium are set by Member States
(see Article 153 TFEU). Given the current framework of competences and the
system of own resources of the Treaties, the flexibility clause of Article 352
cannot be used either, as the establishment of macroeconomic stabilisation
systems would exceed the general framework of the current Treaties and thus
amount to amending the Treaties without following the requisite procedures. In
other words, this final stage would require a fundamental overhaul of the
Treaties, which would also have to be accompanied — as detailed in the
blueprint — by commensurate political integration, ensuring democratic
legitimacy and accountability.

5.   STRENGTHENING
SOCIAL DIALOGUE

The EU-level
social dialogue plays an essential role in advancing our social market economy,
producing benefits for employers, workers, and for the economy and society as a
whole. When strengthening economic governance, it is critical to involve the
social partners in policy debates and decision-making processes. This is not
only to increase the ownership of policies and to ensure meaningful
implementation, but also to enhance the effectiveness of policy coordination at
euro area level. It is therefore vital that we invest in strengthening social
dialogue at both European and national levels.

Social
partners play an important role at national level in setting labour market
rules and wages. They have a strong influence in other structural policies
through tripartite consultations, such as in the area of social security. On
wage setting in particular, there are diverse industrial relations in the EU
and the Member States decide how to organise wage bargaining. Social partners
are also key players when it comes to implementing measures such as
apprenticeships or effective lifelong learning.

There is scope for
improving the mechanisms to involve the social partners in the coordination of
economic and employment policies at EU level.

5.1       Making the best use of existing fora

At EU level, the social
partners take part in a biannual macroeconomic dialogue (MED) and they hold
twice-yearly exchanges of views at the highest political level in the
tripartite social summit (TSS).[18] Both the macroeconomic
dialogue and the tripartite social summit are key opportunities to involve the
social partners in the European Semester process.

The Commission is
convinced that it is possible to involve the social partners even more in EU
and EMU governance while fully respecting their autonomy. More could be done to
make use of the synergy and complementarity between different fora,
particularly to promote consistency and avoid parallel processes. Reporting and
follow-up should be made more systematic to ensure greater transparency and
communication and the composition of the fora could be streamlined. The
potential of the bipartite social dialogue should be further exploited, and the
level of representation of national social partners should be upgraded in all fora,
in particular in the Social Dialogue Committee.

The existing fora
have proved their worth. New forms of dialogue should only be considered after
a shared assessment of their need.

The macroeconomic
dialogue is a high level forum for exchanging views between the Council,
the Commission, the European Central Bank and the social partner representations
at EU level. It was set up with the specific goal of fostering a regular
dialogue on macroeconomic policy making in the euro area. The MED has a
two-layer structure, political and technical. The political dialogue is
organised by the Member State holding the rotating presidency of the Council
(and attended by the two subsequent presidencies), and it is preceded by a
technical preparatory meeting.[19]

The tripartite social
summit for Growth and Employment is enshrined in Article 152 TFEU as an
integral component of social dialogue at EU level. The task of the tripartite
social summit is to ensure the highest social dialogue
between the Presidency of the Council (and the two subsequent presidencies),
the Commission and employers’ and workers’ representatives. The summit
takes place within the context of cross-industry dialogue. Its agenda therefore includes issues affecting all
economic sectors and EU workers.

Employment and social
policies are also regularly discussed at informal meetings between the EPSCO
Council and the EU social partners, twice a year. In addition, the Treaty
provides for a consultation mechanism between the Committees and the EU social
partners (Articles 150 and 160 TFEU).

5.2       Consultation during the European
Semester process

There is a broad
consensus among the EU institutions on the need to better involve the social
partners in European governance, in particular in the European Semester
process. While the autonomy of social partners and the diversity of national
practices must be respected (in line with Articles 152 and 153(5) TFEU), the involvement of social partners in framing and implementing
economic and employment policies needs to be commensurate with the developments
in monitoring and coordination mechanisms if reinforced EMU governance is to be
effective and inclusive. National-level consultations with the social
partners play an important role, in particular during the adoption of national
reform programmes and implementation of country-specific recommendations. This
consultation is crucial to labour market issues, but also to overall economic
and social issues and policies.

There is certainly room
to make better use of current European social dialogue mechanisms in order to
timely and efficiently consult the social partners at key steps of the
decision-making process at European level. In order to be effective,
consultations must also involve the national social partners’ organisations.
This can only work if Member States also improve, in line with national
traditions, the involvement of their social partners in the discussion, design
and implementation of on-going reforms, following their national traditions. It
will be up to national governments, in accordance with their rules and
practices, to define the arrangements for discussing the country-specific
recommendations with social partners. The Commission will nevertheless
encourage the Member States to discuss implementation of the country-specific
recommendations and all relevant reforms with social partners and to annex
their opinions to the national reform programmes.

The Commission proposes
to improve the current consultation process as follows:

The Commission will meet
the EU social partners before it adopts the Annual Growth Survey, in the
framework of the Social Dialogue Committee, in order to obtain their
views on the upcoming priorities and their feedback on the outcome of the
previous European Semester process. The main messages arising from this
consultation will be shared with the Council at the October tripartite social summit.
The Commission will annex to its Industrial Relations Report the joint written
opinions from social partners, previously discussed and agreed between the
parties.

Following its adoption,
the Commission will organise a debate on the Annual Growth Survey and the Joint
Employment Report with the EU social partners and their national affiliates,
also in the context of the Social Dialogue Committee. The objective is to
promote a better mutual understanding of expectations and concerns. The debate
will be organised around the scoreboard of key employment and social
developments included in that report, the key themes of economic and social
reforms, their employment and social dimensions and their coordination. If
appropriate, the debate will also include an exchange of views on issues of
direct relevance to the social partners, such as wages or collective bargaining
systems. The opinions received from the social partners will be disseminated as
appropriate. This consultation will complement the exchange of views between
the Committees (EMCO and SPC) and the EU social partners’ secretariats, and
will therefore help to prepare the tripartite social summit scheduled for
March.

Tripartite social summit will remain
the highest level meeting between the Commission, the Council and the European
social partners to discuss growth and employment policies. The March tripartite
social summit will focus on the European Semester. Its debates will be prepared
by the EPSCO Council. The high level political dialogues should be preceded by
a technical preparatory meeting, to be organised by the social dialogue
committee. The Commission will propose revising the decision that created the
tripartite social summit to align it to the new institutional framework
established by the Lisbon Treaty and its integrated growth and employment
strategy.

The current set up for
holding thematic dialogues under the EMCO and the SPC Committees should be
developed and streamlined. The consultation process could be complemented by ad
hoc meetings or by making working arrangements to better involve social
partners in discussions on relevant policy issues, taking into account their
specific responsibility and potential sensitivity for social partners (e.g.
youth employment, wages, pension and health care reforms).

Building on its report
on Industrial Relations in Europe and on the work of the European Industrial
Relations Observatory within Eurofound, the Commission will also continue to
promote monitoring of social dialogue developments throughout the EU.

6.         CONCLUSION

The recent
changes to strengthen EU economic governance aim to reinforce the EMU, address
some of the initial weaknesses of its design and make it more competitive and
able to promote growth. In the Commission’s view, developing the social
dimension of EMU is an essential part of this process. This means developing
the ability of current economic governance mechanisms and policy instruments to
take into account and address challenges related to employment and social
policies in the EU, helping all Member States to achieve their growth and
employment potential and improve social cohesion in line with EU objectives.

A
well-functioning monetary union requires flexible markets and appropriate
institutions to address the social situation and provide adequate national
safety nets.

There is scope to
strengthen the social dimension of EMU by better coordinating and monitoring
employment and social policies and developments as part of the European
Semester process, mobilising and targeting action and funds to better address
social distress, removing the barriers to cross-border labour mobility within
the EU and boosting the role of social dialogue.

The Commission looks
forward to working with the other EU institutions, the Member States and the
social partners to achieve rapid progress in this area.

Annex: Indicative table for the scoreboard of
key employment and social indicators

(to
be analysed in the draft Joint Employment Report for the 2014 European
Semester)

INDICATORS || Unemployment rate (%) || NEET (%) (Not in employment, education and training rate) and Youth employment rate || Change in Real gross disposable income of households (GDHI) || At-risk-of-poverty rate -18-64 (%) || Inequality (S80/S20 ratio)

Target population || Active population || Youth (18-24) || Total population || Working age population || Total population

Data source and change || LFS (annual change) || LFS (annual change) || National accounts || EU-SILC (annual change) || EU-SILC

Rationale for indicator || General labour market developments; loss of output and productivity; competitiveness; social cohesion || Loss of employability and productivity; skills relevance; performance of education and labour market institutions; competitiveness; social cohesion || Aggregate demand; adequacy of labour market incomes; effectiveness of replacement income schemes || General poverty developments (focus on real incomes of poor people); social cohesion; erosion of human capital || Labour market segmentation and precariousness; equality of opportunity; aggregate demand and social cohesion

EPM, SPPM and JAF would be used to support the reading of headline indicators || Detailed reading of the scoreboard would be based on the Employment Performance Monitor (EPM), Social Protection Performance Monitor (SPPM) and Joint Assessment Framework in their entirety. For illustrative purposes, some examples of indicators are listed below that show how the EPM, SPPM and JAF would support the interpretation of the main indicators:

|| Long-term unemployment share; Employment rate (m/w, by age, skill level); Involuntary part time / temporary employment ; Job vacancy rate (average over 3 years); Other indicators on ALMP coverage || Youth unemployment rate; NEETs broken down by age 15-18.18-19, 20-24; Employment rate of young people; Early school leavers || Contribution of work income (employees and self-employed) to GDHI; Real unit labour costs; Household saving rate; Household debt to income ratio, Coverage rates of unemployment benefits || Anchored at-risk-of-poverty rate (%); Depth of poverty, At-risk of poverty gap ; Other dimensions of poverty: In-work poverty, jobless households; Severe material deprivation, AROPE by age (child poverty, working-age poverty, elderly poverty) || Indicators of segmentation (Involuntary temporary/part-time employment, labour market transitions (by type of contract or pay level; etc. )); Indicators of other inequalities in the LM (Literacy score gap (PISA)), Gender pay gap, Earnings inequality (excl. people out of work)

Annex:
Indicative table of the additional auxiliary employment and social indicators
in the AMR

INDICATORS || Participation rate (%) || Long-term unemployment ratio (%) || Youth unemployment rate (%) || At risk of poverty and social exclusion (AROPE) rate (%)

Target population || Working age population              (15-64 year) || Active population || Active population in same age group (15-24 years old) || Total population

Data source/change || Eurostat, LFS/level and evolution over time || Eurostat, LFS/ level and evolution over time || Eurostat, LFS/ level and evolution over time || Eurostat, SILC/ level and evolution over time

Rationale for the indicator || Complements the rate of unemployment as it indicates underlying flows from activity to inactivity and vice versa. It allows to look at structural disincentives not to seek work as well as ‘discouragement effects’ of prolonged unemployment, undeclared labour, informal sector employment and agricultural underemployment. || Points to structural problems in the labour market, e.g. qualification mismatch, insider-outsider problems. It indicates reduced prospects of re-employment and the increased risk of becoming trapped in joblessness. || Gives a measure of the difficulties encountered by early and possibly low-qualified entrants in the labour market; experiencing a prolonged period of unemployment early in one’s career can have long-lasting consequences in terms of future earnings prospects and attachment to the labour market. || Aggregate indicator that captures different dimensions of poverty

Complementary indicators || n.a. || n.a. || NEET (rate of young individuals who are not in employment, education or training over total population aged 15-24) || Components: at risk of poverty rate (AROP) that captures relative poverty, severe material deprivation rate that captures absolute poverty, persons living in households with low work intensity

Strengthening the
monitoring and surveillance of employment and social challenges within the
European Semester

Corrective MIP preventive MIP

Annual Growth Survey

February/March: ECOFIN & EPSCO, Macroeconomic Dialogue, Tripartite Social Summit, Spring European Council

April: Finalisation of SCPs & NRPs (with involvement of national social partners)

May/June: Commission proposes CSRs; discussion in the Council’s Committees, EPSCO & ECOFIN

June/July: European Council endorses and Council adopts CSRs

Art. 148 EPSCO

November: Macroeconomic Dialogue; Commission publishes AGS, AMR, draft JER

October: Tripartite Social Summit, Autumn European Council

[1] Communication
from the Commission ‘A Blueprint for a deep and genuine economic and monetary
union. Launching a European debate’. 28/12/2012. COM(2012) 777.

[2] EP
own-initiative report ‘Towards a genuine Economic and Monetary Union’ presented
on 18/10/2012 (‘Thyssen Report’).

[3] European
Commission, Employment and Social
Developments in Europe 2012.

[4] See
Presidency Conclusions of the Extraordinary European Council Meeting on
Employment, Luxembourg, 20-21 November 1997, § 3.

[5] See Regulation
1466/97, as amended by Regulation 1175/2011, in particular section 1-a on the
European Semester for economic policy coordination.

[6] Letter from
the Council Presidency to the President of the European Council on the ‘Social
Dimension of the EMU’, 15 May 2013.

[7] The
Employment Policy Monitor (EPM) and the Social Protection Performance Monitor
(SPPM).

[8] A full
overview is provided in annex. There will be no
additional reporting obligation on Member States.

[9] The Joint
Employment Report, provided for in Article 148(1) TFEU, is subject to adoption
by the Council and addressed to the European Council. The term ‘Joint’ refers
to an agreement between the Commission and the Council, with the corresponding
dataset extensively used in the European Semester.

[10] The EPM is a
joint Commission/Member State-agreed report with the ultimate aim of
identifying commonly agreed key employment challenges for each Member State.
This is done by comparing performance both statically against peers
(benchmarking) and within the Member State over time. The EPM provides a
summary of the assessment produced by the JAF in 10 domains related to the
labour market.

[11] The SPPM was
endorsed by the Council in October 2012 as a method of monitoring the social
situation of Member States in the EU.

[12] The JAF is a
database of key labour market and social indicators used to monitor labour
market and social developments in the Member States and progress towards
headline targets. It is an analytical tool based on a set of commonly agreed
indicators in 11 policy domains.

[13] On 17 June
2013, the Commission presented a proposal for a Decision on enhanced
cooperation between PESs which will allow for a meaningful comparison of their performance,
using evidence-based benchmarking.

[14] COM(2012) 173
final.

[15] Communication from the
Commission "Evaluating access to regulated professions". 02/10/2013.

[16] COM(2013) 236
final.

[17] COM(2013) 269
final.

[18] The TSS has met
since 1997, but it was formally set up in 2003 (Decision 2003/174/EC), and is
now integrated in the Lisbon Treaty. The MED was established in 1999 on the
basis of Presidency conclusions (Cologne European Council).

[19] The framework
is set out by the Economic Policy Committee (EPC).